Can Women Save the Market?

March 13, 2011

Weekly Market Outlook

By Keith Schneider


blankWith the market swooning this week on news out of the Mid East, the government reported that the American Consumer (AKA mainly Women shoppers) have continued shopping, lifting the retail (ANN, Ann Taylor, RL, Ralph Lauren, TIF, Tiffany's) sector thereby helping stabilize the market. How fitting then that this is the week that celebrates International Woman's Day? Thanks ladies and please, keep up the optimism and keep on shopping!

On the more serious side, we woke Friday morning to the news that Japan got hit with one of the most powerful earthquakes ever recorded resulting in many deaths, followed by devastating tsunamis from the aftershocks that even reached California. Our sympathies go out to those unfortunate to be in the disaster's path.

For the past two weeks, as the market digested news out of the Mid-East, it has been moving violently up and down creating railroad tracks on the charts. Finally, a crushing blow came on Thursday on news of riots in Saudi Arabia. Libya, with a small fraction of world crude exports offline for the time being, is one thing, but a change in government in Saudi Arabia is a different animal. We might be witnessing the birth of a new world order which could be devastating to the global economy driving oil to the stratosphere, or this could be just a blip if things simmer down. Furthermore, US combat troops are exiting Iraq, leaving it vulnerable to an Iranian power play. This works perfectly for Iran who is a sworn enemy with Saudi Arabia and the US.

Destabilizing Saudi Arabia is certainly in Iran's best interests, as it would keep oil prices high and weaken the US across the board. This week's overall market action seems a bit more in line with these inherent risks.

SPY (S&P 500), DIA (Dow Jones), IWM (Russell 2000) and QQQQ (NASDQ 100) Indexes

The different indexes all sold off this week but have fairly divergent stories to tell. The 50 Day moving average was pierced on all key indexes and looked like we would be getting a confirmed phase change down to warning across all key indexes with the lower opening on Friday, but the SPY and DIA both rallied enough to close just above the critical average. Meanwhile the QQQQ's and the IWM (Russell 2000) both closed under the 50 day for 2 consecutive days confirming a downgrade in their market phase to warning.

However, to further complicate things, the QQQQ closed with a bullish engulfing pattern. Does all this clarify the trend for you? The best we can say is that the market action has certainly deteriorated, and next week it should resolve itself as to whether this selloff is just a test of the bull trend like what happened in November, or the start of a more serious correction. With the exception of GOOG, the price action in some of the leading NASDQ stocks held up well by the close on Friday, a positive sign, even though the NASDQ is the weakest market index, and it left an opening downside gap, exiting the wedge formation formed over the past several weeks.

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Market Internals

VIX (sentiment): As we mentioned in our prior edition of this newsletter, the VIX was still in positive territory and back into it's trading bands but much closer to its 200 day moving average; hence, a potential sell signal. So although we had a nasty swoon, this sentiment indicator never triggered. We are still bullish, but monitoring closely.

It certainly is interesting that a potential change in trend and this sentiment indicator are both on the cusp, and even more surprising that the big sell off did not get this indicator to trigger this past week.

Accumulation/Distribution Volume: The markets continued it's seesaw action and have been only registering distribution days in the past week with weaker volume to the upside. This pattern has been enough to give us a sell signal on the QQQQ's, but not in the other key indexes. We'd like to see another index confirm this distribution pattern for a sell signal.

Sectors

Gold (GLD): Gold has been stalling at the highs established on Dec 6. Silver has been on its own tear and continues to be the stronger of the two by a wide margin. The longer term cycles are negative for gold. It will be interesting to see if the market goes counter cyclical. If it does move above the recent highs, watch out as countercyclical moves are often the most powerful. Conversely, this still could be a potential top for a while so we are at an inflection point.

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Oil (OIL) CRUDE ETN: As the Saudi crises calmed a bit later this week, OIL sold off helping the overall stock indexes get a lift from the selling pressure on Friday. The normal correlation of oil prices to the market is almost one to one, but over the past few weeks that has switched as fears of much higher oil prices would kill the recovery. This correlation seems to have switched back and forth day to day this week, but we need to keep our eyes on crude as the key to markets. If this rally sustains, we can expect a change in trend of the equities market.

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New Economy Stocks: Last week we featured GOOG and AMZN as stocks to watch on the downside. We were spot on. Let's take a look at the GOOG chart as we are just about at our first target and would not be surprised to see a bounce. Other leading NASDQ stocks fared a bit better by Friday afternoon such as AAPL, which bounced off of the 50 day MA, a positive.

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Opening Range Strategies

This week's featured trade using the opening range is WTW (Weight Watchers) as we caught a move for 1.5 ATR's by the end of the day on Thursday, even as a major sell off was under way in the overall market. Notice the positive stack of the floor trader midpoint (grey) which helped clue us in to it's relative strength as well as it's daily pattern. Come join us at https://marketgauge.com/daytradinghs/preibill_tradehs.asp

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